Stanley Black & Decker (NYSE: SWK) today announced full year and fourth quarter 2018 financial results.
- Full Year Revenues Totaled $14.0 Billion, Up 8% Versus Prior Year, With 5% Organic Growth
- Full Year Operating Margin Rate Was 12.4%; Excluding Charges, Full Year Operating Margin Rate Remained Strong At 13.6% Despite $370 Million In External Headwinds
- Full Year Diluted GAAP EPS Was $4.26; Excluding Charges, Full Year Diluted EPS Was $8.15, Up 9% Versus Prior Year, As Price, Lower Expenses And Volume Leverage More Than Offset The Impacts Of Commodity Inflation, Currency And Tariffs
- 4Q'18 Revenues Totaled $3.6 Billion, Up 5% Versus Prior Year, Including Robust Organic Growth Of 6%
- 4Q'18 Diluted GAAP EPS Was ($0.45); Excluding Charges, 4Q'18 Diluted EPS Was $2.11
- Expect 2019 Full Year Diluted GAAP EPS Of $7.45 To $7.65; Adjusted EPS Of $8.45 - $8.65; 2019 Free Cash Flow Conversion Expected To Approximate 85% - 90%.
4Q'18 Key Points:
- Net sales for the quarter were $3.6 billion, up 5% versus prior year, as volume (+5%), acquisitions (+2%) and price (+1%) more than offset currency (-3%).
- Gross margin rate for the quarter was 33.3%. Excluding charges, the rate was down 280 basis points from prior year as volume leverage, productivity and price were more than offset by external headwinds, including commodity inflation, foreign exchange and tariffs.
- SG&A expenses were 21.5% of sales. Excluding charges, SG&A expenses were 20.1% of sales compared to 22.7% in 4Q'17, primarily reflecting prudent cost management.
- Restructuring charges for the quarter were $102.2 million primarily related to the cost reduction program. Excluding the 4Q'18 cost reduction program, restructuring charges for the quarter were $0.4 million compared to $4.9 million in 4Q'17.
- Tax rate was 129.7%, which primarily reflects a net charge due to the finalization of the impact of U.S. tax reform. Excluding charges, tax rate was 17.3%.
- Working capital turns for the quarter were 8.8, down 0.3 turns from prior year primarily as a result of carrying higher levels of inventory associated with the Craftsman rollout.
- Free cash flow conversion for the full year was 119%. Excluding charges associated with U.S. tax reform, free cash flow conversion was approximately 90%.
James M. Loree, President & CEO, commented, "Stanley Black & Decker delivered a strong performance in 2018, overcoming approximately $370 million in external headwinds and an increasingly dynamic operating environment. Our team delivered total revenue growth of 8% with above-market organic growth of 5%, adjusted earnings per share expansion of 9% and solid free cash flow conversion. From a strategic capital deployment perspective, we repurchased $500 million in shares and announced plans to expand our position in the lawn and garden space by partnering with MTD and adding IES Attachments to our industrial portfolio.
"We continue to be well-positioned to deliver share gains as we leverage our robust growth catalysts, which include the continued Craftsman brand rollout, Lenox and Irwin revenue synergies, FlexVolt, e-commerce, emerging markets and new innovations. The organization is keenly focused on margin accretion as we realize the benefits from our $250 million cost reduction program, execute price recovery actions in response to external headwinds, and implement an array of new margin enhancement initiatives.
"As we head into 2019, our seasoned management team will act with agility and speed to respond to the underlying operating environment by leveraging our SFS 2.0 operating system, while deploying our growth and margin initiatives to deliver a successful year and continue to make progress against the 22/22 vision."
| 4Q'18 Segment Results | ||||||
| 1 See Merger And Acquisition (M&A) Related Charges And Other On Page 5 |
- Tools & Storage net sales increased 4% versus 4Q'17 due to volume (+5%), and price (+2%) partially offset by currency (-3%). Each region contributed to the strong organic growth for the quarter with North America +10%, Europe +4% and emerging markets +3%. North America organic growth was driven by continued benefits from new product innovation, the rollout of the Craftsman brand and price realization. Europe growth was supported by new products and successful commercial actions overcoming weaker market conditions. Emerging markets growth was attributable to mid-price-point product releases, strong e-commerce growth, Lenox/Irwin revenue synergies and pricing actions, which were partially offset by severe market contractions in Argentina and Turkey. Overall Tools & Storage segment profit rate was 15.4%, excluding charges, down from the 4Q'17 rate of 16.3%, as the benefits from volume leverage, pricing and cost control were more than offset by the impact from currency, commodity inflation and tariffs.
- Industrial net sales increased 14% versus 4Q'17 as acquisitions (+12%), and volume (+4%) were partially offset by currency (-2%). Engineered Fastening organic revenues were up 1% due to higher systems shipments and fastener penetration gains in the automotive business which overcame a decline in global light vehicle production. Infrastructure organic revenues were up 18% primarily due to stronger North American pipeline project activity in Oil & Gas as well as higher Hydraulic Tools volumes. Overall Industrial segment profit rate was 13.2%, excluding charges, down from the 4Q'17 rate of 15.4%, as productivity gains and cost control were more than offset by commodity inflation, the modestly dilutive impact from the acquisition of Nelson Fasteners and unfavorable mix.
- Security net sales declined 1% versus 4Q'17 as bolt-on commercial electronic security acquisitions (+3%) and price (+1%) were more than offset by currency (-2%) and lower volume (-3%). North America organic growth declined 2% as higher volumes within automatic doors and healthcare were offset by lower installations in commercial electronic security. Europe declined 2% organically as growth within Sweden was offset by weakness in the UK and France. Overall Security segment profit rate, excluding charges, was 12.0%, which was up 100 basis points versus the prior year, as a focus on cost containment was partially offset by continued investments to support the business transformation in commercial electronic security.
2019 Outlook
Donald Allan Jr., Executive Vice President and CFO, commented, "During 2018 we successfully navigated dynamic end markets and overcame multiple external headwinds while delivering a strong overall financial performance. We are preparing for a similar operating environment in 2019, and expect to generate above-market organic growth of approximately 4%, adjusted earnings per share expansion of 4% - 6% versus prior year and continued strong free cash flow generation, which will primarily be allocated toward achieving our deleveraging objectives in 2019."
Management expects its 2019 EPS to be $7.45 - $7.65 on a GAAP basis and $8.45 - $8.65 on an adjusted basis. Free cash flow conversion is expected to approximate 85% - 90%, as we make the payments associated with the 4Q'18 cost reduction program.
The following represents key 2019 adjusted EPS assumptions:
- Organic volume (~+$0.30 to +$0.40)
- Benefit from the cost reduction program, net of modest investments (~ +$1.05)
- Incremental tariffs, commodity inflation and currency partially offset by pricing (~ -$0.90 to -$1.00)
- Tax rate to approximate 17.5% (~ -$0.15)
- The benefits from the MTD partnership and lower shares partially offset by higher interest expense (~+$0.10)
Allan continued, "The organization remains focused on operational excellence and strong day-to-day execution in alignment with our SFS 2.0 operating system. The Company is developing and executing a new set of value creating initiatives intended to help offset external headwinds, withstand continued volatility and support margin expansion. We are confident that we are well-positioned to deliver sustained above-market organic growth with operating leverage, strong free cash flow conversion and top-quartile shareholder returns over the long-term."
Merger And Acquisition ("M&A") Related Charges And Other
Total M&A related and other charges in 4Q'18 were $161.9 million, primarily related to restructuring and deal and integration costs. Gross margin included $1.1 million of these charges while SG&A included $52.3 million. Other, net and Restructuring included $6.7 million and $101.8 million of these charges, respectively.
Stanley Black & Decker, an S&P 500 company, is a diversified global provider of hand tools, power tools and related accessories, electronic security solutions, healthcare solutions, engineered fastening systems, and more. Learn more at www.stanleyblackanddecker.com.
